Cerberus Sells Down Aozora

Plan to Cut Japanese Bank Stake to Just 8% Shows Tough Time in That Sector

By

Atsuko Fukase And

Ryan Dezember

Jan. 7, 2013 1:05 p.m. ET

TOKYO—U.S. private-equity firm Cerberus Capital Management LP plans to sell most of its 58% stake in Japanese lender Aozora Bank Ltd.83040.85%, largely exiting from a volatile 10-year investment that highlights how tough it has been for funds to make continuing profits from the distressed banks bought after Japan's 1990s financial crisis.

Cerberus plans to reduce its stake to about 8% by offering shares in the open market, Aozora said, in a deal that would generate ¥158.1 billion ($1.8 billion) based on Monday's closing price of ¥250 a share on the Tokyo Stock Exchange. That is on top of an estimated ¥100 billion Cerberus made from cashing out some of its stake at a much higher price in 2006, when Aozora's initial public offering priced shares at ¥570.

ENLARGE

An Aozora Bank sign outside its Tokyo headquarters. Cerberus Capital said it would sell most of its 58% stake in the lender on the open market.
Bloomberg News

The sale proceeds compare with the ¥101 billion Cerberus paid to buy 49% of Aozora in 2003. Cerberus subsequently brought its stake up to 58% with purchases from various firms. In dollar terms, because of the roughly 30% appreciation of the yen versus the dollar since the beginning of 2003, Cerberus's gains could be greater.

Aozora shares plunged 10% Monday ahead of the announcement but following a media report about the stake sale.

Cerberus didn't respond to requests for comment on the proposed sale.

Cerberus's experience with Aozora in some ways mirrors the ups and downs other financiers had in Japan's financial sector.

Japanese banks, particularly midsize lenders like Aozora, Shinsei Bank Ltd.SKLKY3.58% and Tokyo Star Bank, have at times struggled with sluggish lending and tough competition with the "megabanks" at home and have had to find a niche market or other source of strength to prosper.

J.C. Flowers & Co. and fellow U.S. firm Ripplewood Holdings LLC reaped a $7.1 billion return on their $1.1 billion investment in 2000 in Shinsei Bank, which focuses on retail and consumer-finance businesses. The deal, seen as one of the most lucrative private-equity investments in history, took advantage of a government agreement that limited losses on bad assets. J.C. Flowers later bought back into the bank around the time of the financial crisis and now owns about 28%.

Shinsei Bank listed on the Tokyo Stock Exchange in February 2004, ending its first trading day at ¥827, up from its premarket offering price of ¥525. The bank's shares have gradually fallen. In 2010, they dropped to ¥56, an all-time low. However, last year, the shares rose sharply and now trade around ¥175.

Dallas-based Lone Star Funds created Tokyo Star Bank from the ashes of Tokyo Sowa Bank, which Lone Star bought in 2001 for ¥40.3 billion. In 2005, Lone Star sold a third of Tokyo Star in an IPO, and sold the rest in 2008 to special-purpose vehicles set up by Advantage Partners.

Advantage Partners launched an offer for all of the bank's shares in 2008. Creditors lent the Advantage Partners entities about ¥170 billion to buy Tokyo Star shares. The creditors, including Lone Star, became shareholders after obtaining collateral shares when Advantage Partners missed a key deadline for loan payments.

Lone Star and other shareholders are now in negotiations to sell the midsize lender to Taiwan's Chinatrust Commercial Bank Co., according to a person close to the talks.

Aozora, a successor of the failed Nippon Credit Bank, restarted operations as a private bank in September 2000. Cerberus bought the bulk of its Aozora shares from Softbank Corp.9984-0.20% in 2003.

Cerberus will remain Aozora's biggest shareholder after the sale. The bank said the price for the tender hasn't been determined, but will be set next week at between 0.9 and 1.0 times the issue's closing price.

Cerberus has surfaced in several high-profile situations in recent months. It is on track to seal a deal, with other investors, to buy parts of struggling grocer Supervalu Inc.SVU0.33% and take a stake in the rest, a person with knowledge of the plan said last week.

Cerberus is also pursuing a sale of a gun maker it owns, Freedom Group Inc., after a shooting massacre last month at a Connecticut elementary school. Cerberus said that as an investment firm, it didn't want to get pulled into a policy debate about guns.

The private-equity firm has also talked with Best Buy Co.BBY0.53% founder Richard Schulze over a potential bid to take the struggling electronics giant private, people familiar with the talks have said.

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